Managed Trade, Trade liberalisation and Local Pollution

The current paper addresses the relationship between trade and endogenous pollution levels. The main focus is quite different from the previous literature. The mechanism linking pollution and trade is that trade provides the home government with a credible threat that helps motivate domestic firms to adopt cleaner technologies. This credible threat comes from the fact that the government has a greater incentive to protect a clean industry than to protect a very polluting one. In that sense, the existence of trade helps reduce domestic pollution compared to what would prevail in a situation of autarky. On the other hand, a commitment to free trade would be counterproductive: it limits the government ‘s ability to credibly threaten its domestic firms. In fact we show that any trade liberalisation hurts the welfare of the home country. In terms of world welfare, moderate trade liberalisation is helpful but only as long as it does no affect the technology choices of the firms

Administrative Delays as Barriers to Trade

One domestic firm and one foreign firm must decide when to introduce their new product to the home market. The home government may apply an import tariff, an administrative delay, or both to the product of the foreign firm. We show that, while both the tariff and administrative delay can ensure the socially optimal timing of entry, the administrative delay is the less efficient instrument for maximising home welfare. If trade liberalization constrains the import tariff to be below its domestically optimal level, we show that the optimal administrative delay leads to lower levels of world welfare than the optimal tariff, so that trade liberalization can be welfare decreasing

Grantbacks, Territorial Restraints, and Innovation

We analyse the effect of grantback clauses in licensing contracts. While competition authorities fear that grantback clauses might decrease the licensee's ex post incentives to innovate, a standard defence is that grantback clauses are required for the patent-owner to agree to license its technology in the first place. We examine the validity of this “but for” defence and the equilibrium effect of grantback clauses on the innovation incentives of the licensee for both non-severable and severable innovations, which roughly correspond to infringing and non-infringing innovations. We show that grantback clauses do not increase the patent-holder's incentives to license when non-severable innovations are at stake but they do when severable innovations are concerned – suggesting that the “but for” defence might be valid for severable innovations but not for non-severable ones, in direct contradiction to regulation in some jurisdictions. Moreover we show that, for severable innovations, grantback clauses can increase the range of parameters for which follow-on innovation by the licensee occurs. Our work extends the large literature on sequential innovation to an environment where information diffuses through licensing rather than through the mere act of patenting. In this different informational set up we show that Green and Scotchmer (1995)’s conclusion that the initial innovator should have a patent of infinite breadth no longer holds

Incentives to create jobs: Regional subsidies, national trade policy and foreign direct investment

A national authority wishes to attract foreign direct investment (FDI) to create local jobs. We analyse the optimal national trade policy when local authorities might offer subsidies to convince a multi-national enterprise (MNE) to invest in their jurisdiction. With centralised decision-making or with allocation of investment to particular localities, the central authority's optimal policy is to use a high tariff to avoid payment of any subsidy to the MNE. Despite this, some socially undesirable (but locally desirable) FDI cannot be avoided. If local authorities compete to offer subsidies to attract local investment, then the central government's optimal policy is to try to discourage FDI by choosing a low tariff. Despite this, some socially undesirable ? and even locally undesirable ? FDI prevails. We conduct our analysis both assuming an upper bound on tariffs, as would be consistent with trade liberalisation, and allowing tariffs to vary freely. The effect of increasing trade liberalisation depends heavily on the system of granting local subsidies: if the system is centralised, trade liberalisation decreases the range of parameters for which FDI occurs; if the system is decentralised and competitive, it increases this range

“Pay for Delay”: What do we disagree on? 12

Antitrust concerns about “Pay For Delay ” patent settlements are based on two theory of harms, one that stresses the need for Courts to review the validity of patents and one that emphasises the “probabilistic” nature of patent rights. The main weakness of the first theory of harm is that it fails to explain why some forms of patent settlements would be less desirable than others. The “probabilistic ” theory of harm raises fundamental questions about the legal obligations of a patent-holder, the type of uncertainty that should be reflected in the probabilistic nature of the patents and whether the theory can be applied to anything but the simplest PFD settlements. The paper also discusses the likely effect of a PDF ban on innovation and reviews both the European approach to recent and on-going PDF cases and the recent Actavis decision of the US Supreme Court

Administrative Delays as Barriers to Trade

We study a two-country model where two firms, one domestic and the other foreign, must decide when to introduce their new product into the market. The home government may apply an import tariff, an administrative delay or both to the product of the foreign firm. An administrative delay imposes a waiting period between the time when the quality of the foreign product is determined and the time when the product can actually be sold. Our main interest is the differential effect of the tariff and the administrative delay on the timing of new product introductions and the resulting changes in home, foreign and world welfare. We show that administrative delays are less efficient instruments for maximizing home welfare than tariffs. With a tariff, the home government can affect the timing of entry to ensure that the domestic firm moves first at the socially optimal date. Although an optimally chosen delay can achieve the same pattern of introduction, it does not yield any tariff revenues. As a result, if the tariff may be set optimally, administrative delays are not used in a discriminatory manner. If trade liberalization constrains the import tariff to be below its domestically optimal level, discriminatory administrative delays may become part of the optimal policy of the home country. As the optimal delay policy leads to lower levels of world welfare than the optimal tariff, trade liberalization can be welfare decreasing.administrative delays; home, foreign and world welfare; tariff revenues

Mergers and Product Innovation: Seeds and GM Crops

Competition authorities increasingly worry about the impact that concentrations might have on innovation. Until recently, a common view was that, because of the well-documented “inverted U-shape” relationship between innovation and market concentration, mergers were only likely to have an adverse effect on innovation if market concentration is already quite high. New cases and new economic papers have challenged this orthodoxy, arguing that a refutable presumption that mergers lead to less innovation might make for better policy. We review this debate and propose a typology of effects to help decide whether or not such a presumption is actually warranted. We then apply these principles to the case of mergers in the seed/GM crops industry, which is of particular significance for BRIC countries. Finally we present a first illustrative empirical exploration of this typology and the economic principles that underlie it by examining how previous mergers in the industry have affected the merged parties’ propensity to patent in various jurisdictions. Because the economic needs of BRIC countries can be distinct, we emphasise not only the effect of mergers on total patent counts but also possible effects on the specific areas where research takes place

Comercio estratégico y políticas ambientales para las industrias oligopólicas

En este artículo nos ocupamos de la relación entre el comercio internacional y la contaminación endógena con un mecanismo en que la política comercial proporciona al gobierno nacional una advertencia creíble que influye en el comportamiento estratégico de las empresas para adoptar tecnologías más limpias. El gobierno tiene un incentivo mayor para proteger una industria limpia que para proteger a una muy contaminante. En este sentido, una economía abierta localmente contaminada con una estructura de mercado imperfectamente competitiva tenderá a disminuir las emisiones de contaminantes en mayor medida que con un régimen autárquico. Un compromiso con el libre comercio sería contraproducente: eliminaría la capacidad del gobierno para amenazar creíblemente a los niveles de protección más bajos. Demostramos que cualquier liberación del comercio podría disminuir el bienestar del país

Are More Important Patents Approved More Slowly and Should They Be?

Innovative activities often are heavily regulated. Reviews conducted by administrative agencies take time and are not perfectly accurate. Of particular concern is whether, by design or not, such agencies discriminate against more important innovations by taking more time to perform their reviews. We study the relationship between the length of patent review and the importance of inventions in a theoretical model. We build a simple model of the US patent review process. The model predicts that, controlling for a patent's position in the new technology cycle, more important innovations would (and should) be approved more quickly. Also, the approval delay is likely to decrease as an industry moves from the early stages of an innovation cycle to later stages. These predictions are in line with the evidence we obtain from a data set of US patents granted in the field of genetically modified crops from 1983 to 1999. Our analysis also helps to reconcile the results on the relationship between importance and delay found in previous studies.genetic modification; innovation; patent policy; regulation